Multiple Questions - State Residency, State Tax, Form 1116 & Dividend Related

[n1njah]

Hi everyone, I hope it's alright if I ask multiple questions as I work on multiple returns. Your response is highly appreciated.

1. 1120 client received nonqual. dividends on an annual statement (not a 1099-B) in which there was a money market fund investment reading "TR II US GOVT". It's not interest income so I'm confused on the taxation of treasury dividends, especially on the 1120. Are they fed/state (CA) taxable and can I input them as "Other Dividends" on the 1120? I looked through the 1120 Schedule C instructions and couldn't find anything besides Line 20 "Any other taxable dividend income not properly reported elsewhere on Schedule C."

2. Same 1120 client - Are 2022 state taxes paid in 2023 deductible for Fed for tax year 2023? I assume they are as they were paid in 2023.

3. Individual client - They're domiciled in California but established a residency in Pennsylvania in 2023 for medical school and stayed there all year. So technically they have residency in two states...but Proconnect only allows one state as 'Resident State'. So when I try to mark PA as a resident state, CA becomes nonresident. Same thing other way around. Anyway around this? Is it even possible to file two resident state returns? I have to report income for both states.

4. Same Individual client - Have to file Form 1116 due to foreign taxes paid on 1099-B. After reading the instructions and doing the worksheets, there's an adjustment exception so all I have to do is include foreign source qual. dividends and foreign source capital gains on line 1a as is. However, I looked around and can't find anywhere to input foreign source capital gains. The only thing I see are foreign source capital gain distributions in the Dividend Income tab when you scroll down, but that's not the same as far as I know. Anybody know how to include it?

Again, thank you and I apologize for the lengthy questions.

[George4Tacks · Accepted solution]

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@n1njah wrote:

Hi everyone, I hope it's alright if I ask multiple questions as I work on multiple returns. Your response is highly appreciated. Multiple are not encouraged. I shall try to do all

1. 1120 client received nonqual. dividends on an annual statement (not a 1099-B) in which there was a money market fund investment reading "TR II US GOVT". It's not interest income so I'm confused on the taxation of treasury dividends, especially on the 1120. Are they fed/state (CA) taxable and can I input them as "Other Dividends" on the 1120? I looked through the 1120 Schedule C instructions and couldn't find anything besides Line 20 "Any other taxable dividend income not properly reported elsewhere on Schedule C." You need to determine that IF IT WERE INTEREST, WOULD IT BE STATE TAX FREE. Look carefully at the prospectus for the fund. IF IT IS EXEMPT put it under US BONDS. 

2. Same 1120 client - Are 2022 state taxes paid in 2023 deductible for Fed for tax year 2023? I assume they are as they were paid in 2023. Cash basis or Accrual accounting? Just be consistent in treatment every year.

3. Individual client - They're domiciled in California but established a residency in Pennsylvania in 2023 for medical school and stayed there all year. So technically they have residency in two states...but Proconnect only allows one state as 'Resident State'. So when I try to mark PA as a resident state, CA becomes nonresident. Same thing other way around. Anyway around this? Is it even possible to file two resident state returns? I have to report income for both states. Students are generally not considered residents. It is not possible to be residents of two states. You can be Part Year resident in two states. You can use US for the resident state. 

4. Same Individual client - Have to file Form 1116 due to foreign taxes paid on 1099-B. After reading the instructions and doing the worksheets, there's an adjustment exception so all I have to do is include foreign source qual. dividends and foreign source capital gains on line 1a as is. However, I looked around and can't find anywhere to input foreign source capital gains. The only thing I see are foreign source capital gain distributions in the Dividend Income tab when you scroll down, but that's not the same as far as I know. Anybody know how to include it? If you have a foreign tax on capital gains in a foreign country, you would need to do that as an entry separate from the dividends. Go directly to 1116 data entry, do not pass GO. 

Again, thank you and I apologize for the lengthy questions. 

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[sjrcpa]

Add to 4. Are you sure the capital gains are foreign? Usually they are not when you get a 1099-B or they are LTCG on a 1099-DIV.

[n1njah]

I appreciate your response to all of my questions.

You need to determine that IF IT WERE INTEREST, WOULD IT BE STATE TAX FREE. Look carefully at the prospectus for the fund. IF IT IS EXEMPT put it under US BONDS. 

Thank you for this.

Cash basis or Accrual accounting? Just be consistent in treatment every year.

Cash.

Students are generally not considered residents. It is not possible to be residents of two states. You can be Part Year resident in two states. You can use US for the resident state. 

I agree that they aren't considered residents, but either way I guess I can do part year resident like you mentioned so thank you.

If you have a foreign tax on capital gains in a foreign country, you would need to do that as an entry separate from the dividends. Go directly to 1116 data entry, do not pass GO. 

Thank you for this as well.

[n1njah]

I think you're right - the cap gains are not foreign because they just simply sold shares of international ETF/index funds so I believe that wouldn't label them as foreign-source. Thanks for mentioning that.